Newcastle Coal Company is considering a project that requires an investment in new equipment of $4,000,000, with an additional $200,000 in shipping and installation costs. Newcastle estimates that its accounts receivable and inventories need to increase by $800,000 to support the new project, some of which is financed by a $320,000 increase in spontaneous liabilities (accounts payable and accruals).

The total cost of Newcastles new equipment is ? and consists of the price of the new equipment plus the ?

In contrast, Newcastles initial investment outlay is ?

Suppose Newcastles new equipment is expected to sell for $1,000,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital investment. The company chose to use straight-line depreciation, and the new equipment was fully depreciated by the end of its useful life. If the firms tax rate is 40%, what is the projects total terminal cash flow?

$600,000

$880,000

$1,080,000

$1,000,000